MHR 322 Exam 1 UW-Madison

Entrepreneur traits

- High Self Esteem

- Motivated

- Innovative/Creative

- Optimistic

Drivers to become an Entrepreneur

- Current Low income

- High Personal wealth

- Unemployed

- Experienced

- Want to see change

Pros of a Student Startup

- stamina

- nothing to lose

- flexibility

- colleagues

- ignorance

Cons of a Student Startup

-less market knowledge

-limited capital

-less dedication since still a student

Why innovations aren't guaranteed -

- Sampling Problems

- Group Think

- Resources

- Environment

- Not believed possible

- Other

3 main motivators

- Idea

- Technology

- Passion

Other motivations

- $$$

- Change world

- work little

- own boss

- insight

small business

- owner's money

- self control

- small reach

- Controls firm

- Personal

high-growth venture

- Investor's money

- multiple controllers

- Novelty/ all over

- Controls market

- Professional

Types of Entrepreneurship

- Small Business

- High Growth Venture

- Social

- Corporate

- Family Business

Social Entrepreneurship

leverages resources to address social problems

Corporate Entrepreneurship

the use or application of entrepreneurship within an established firm

Family Business

owned and controlled by members of a family

"Make what you can sell"

"Don't sell what you can make"

Factors Affecting Diffusion

- relative advantage

- compatibility

- observe-ability

- complexity

- trial-ability

Fast Growth Start-up

- Large market potential

- Novel idea

- Strong tech

- Rapid market changes

- High value creation

- HIGH FAILURE RATE

Two Approaches to Market

- Predictive/Forecasting

- Learning/Experiments

Predictive/Forecasting

- Predict characteristics of customer

- use market research

Learning/Experiment

- Test and draw Conclusions

- BUILD, MEASURE, LEARN

Porter's 5 Forces

*Rivalry among competitors;

*Threat of new entrants;

*Threat of substitute products;

*Bargaining power of buyers;

*Bargaining power of suppliers;

4 P's of Marketing

-Product

-Price

-Place

-Promotion

China effect

"SELL TO EVERYONE"

Market Segmentation

the process of dividing a market into meaningful, relatively similar, and identifiable segments or groups

Beachhead Market

The first market your business sells in

3 conditions of Market "inside the tornado"

- customers buy similar products

- customers have similar sales cycles

- "Word of mouth" between customers

Total Addressable Market

The total market if a company had a monopoly (and everyone received the good/service) or 100% market share.

bottom up

counting people

top down

Market research

What makes up the customer?

- End user

- Decision Making Unit

Decision Making Unit

- Champion

- Primary Economic Buyer

- Influencer/Vetoer

end user

The person or group who will use the product produced by the project.

champion

supporter of the product

Primary Economic Buyer

The person with the authority to spend money to purchase the product. Sometimes this is the end user.

Influencers, Veto Power

people who influence the buying decision

Why people buy

- Quality

- Price

- Sale Discount

- Style

- Brand

3 types of capital

- economic

- social

- cultural

Why get a co-founder?

- Lack of capital

- Prefer group work

- Need diversity

How to decide how many co-counders

- Capital

- Complexity

- Speed

Jungle Phase

- Beginning of company

- rough; will change a lot

3 types of team members (3 H's)

- Hacker

- Hustler

- Hipster

Hacker

Innovator

Hustler

Businessman

Hipster

Marketing

Deciding how to distribute $$$

- Past contributions

- Opportunity Cost

- Future contributions

- Motivators

- Vesting (20% over 4 years)

- use Attornys

Types of Businesses

1. Sole Proprietorship

2. LLC

3. Corporation

Sole Proprietorship

- A business owned by one person

Pros of Sole Proprietorship

Easiest to start

Least regulated

Single owner keeps all the profits

Taxed once as personal income

Cons of Sole Proprietorship

unlimited personal liability

limited ability to raise funds

Corporation

a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.

Pros of Corporation

Limited liability

Easy transfer of ownership

Unlimited life

Equity is not limited

Cons of Corporation

costly to organize

possible double taxation of income

Limited Liability Company (LLC)

A hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership.

Pros of LLC

-limited liability for all members

-tax flexibility

-easy to create and administer

Cons of LLC

- Cannot go public

General Partnership

partnership in which partners share equally in both responsibility and liability

Limited Partnership

form of partnership where one or more partners are not active in the daily running of the business, and whose liability for the partnership's debt is restricted to the amount invested in the business

not-for-profit

type of business organization that typically uses revenue for charitable or religious purposes

Legal Issues for Businesses

- Name

- Structure

- Nondisclosure Agreement

- Bylaws / Operating Agreement

- Contracts with Customers/Suppliers

intellectual property

A product of the intellect, such as an expressed idea or concept, that has commercial value.

Ways to protect intellectual property

-patents

-trade secrets

-trademarks

-copyright

Core Values (Competitive Advantage)

the primary or dominant values that are accepted throughout the organization

Types of Core Values

- Quality

- Network Effect

- Low Cost

- User Experience

- Manufacturing / Design Expertise

- Customer Service

NOT types of core values

- First mover advantage

- Locking up suppliers

Comparing to Competition

- define market

- define customers you target

- what is the status quo

- Why is your product better?

Startup Competition

- BE DIFFERENT

- Don't respond quick to competitive shifts

- Assume you have no advantage

Small Firm advantages

- High Powered incentives

- Idea

- Speed

- Fit with environment

- No legacy costs

switching costs

costs that make customers reluctant to switch to another product or service

Types of switching costs

- User level/learning

- Complementary assets

- Search costs

- Network effects

Overcoming Switching Costs

- Removes switching costs

- technologically better than the incumbent

- is sufficiently better

- is sufficiently better that it overcomes the risks

- fits customer purchase logic

establishing switching costs

-contractual provisions: extended, exclusive

-stagger purchases (durable purchases)

-unique interfaces (brand-specific training)

-acquire/neutralize other suppliers

-customize solutions (search costs)

-establish loyalty programs